Export performance and import intensity of Slovakia

Export performance and import intensity of Slovakia Ing. PhD. Sylvia Jenčová Faculty of management Department of Finance and Accounting University of Presov in Presov Konštantínova 16, 080 01 Prešov, Slovakia sylvia.jencova@unipo.sk Abstract The role of international trade in national and global economies is significant, especially in small economically developed countries characterized by a high share of foreign trade, roughly equal to their domestic product, and indeed even more so if there is an even higher share of foreign trade per capita of the country. The aim of this paper is to highlight the development of exports and imports with respect to the total gross domestic product of Slovakia for the period 1993-2012. Predictions will be based on data analysis via a regression tool to forecast the evolution of export performance and import intensity with regards to gross domestic product. Key words Model, Profitability Indicator, Return on Assets INTRODUCTION The purpose of this paper is to define the status of international trade in the global economy for the 21st century, in the context of how the conjugate cycles of continuous scientific and technological advances are causing rapid change. One of the relevant changes in the previous period is the change in the nature and our understanding of internationally successful companies. In addition, traditional, nearly century old transnational corporations have been joined in the international arena by small and fast-growing companies. Globalization tendencies of the contemporary world have highlighted the role of business in the international environment. STATUS OF INTERNATIONAL TRADE International trade is a consequence of the determination and categorization of the value of commodities across borders. Consequences of international trade on the individual, state, and national economies are subject to the laws of economics. Theories of international economics have been covered by many authors, but the most current include Samuelson (1990), Krugman (2003), Soukup (2012), Majerová (2009), Nezval (2011), Žamberský, Jirásková (2009), Svatoš (2009), Baláž, Verček (2010) and others. International Economics uses basic methods of economic analysis as well as other professional economics models, because the motives and behavior of economic agents are often identical, whether they are domestic or foreign transactions. International Economics, according to Soukup (2012, p.12), is divided into two parts: one part analyzes the international exchange (economics international trade, international transactions of goods and allocation of economic resources); and the second part analyzes international money (cash flow with regards to international economics and monetary transactions). International trade, according to Majerová (2011, p. 6) is defined as the exchange of goods from one country with those of another country's, thus extending the possibilities of consumer economies. There

are several factors that contribute to the continuous development: production conditions; the difference between the state of a nation's economics and its technology (i.e., the south will specialize in the development of coastal tourism while the north on developing ski resorts); increasing returns due to the scale of production (i.e., the average cost of production declines with growth); differences in consumer tastes and demands; governmental economic policy and tax-subsidy policy (may determine prices); and potential conflicts between production and consumption (almost no country is capable as a producer goods and services to meet the needs of their consumers). Figure 1 shows the transformation function for foreign trade. Production Import Total resources intended for use Reciprocity requirement given external balances Production for domestic consumption Final domestic consumption Figure 1 Function of Foreign Trade Source: Štěrbová, 2013, p. 21 Export Reduced foreign demand decline in exports The slowdown in the export sector: decline in investment, redundancies Recession decline in imports High trade openness Any improvement in the trade balance in the terms of trade (ratio of export and import prices) The slowdown in export sectors: decline in investment, redundancies Figure 2 Transferring the Effects of an Economic Downturn from Abroad to the Domestic Economy Source: Štěrbová, 2013, p. 25

Foreign Trade is a trade of one of the national economies with its environment, i.e. with one or more of the other national economies. Foreign trade involves business operations with institutions with an international element, i.e. foreign trade operations. There is also a foreign element (trade policy) that can be defined in two ways. By Holiness (2009, p. 29) trade policy is part of the state regulation of internal economic relations. In practice, any policy oscillates between two extreme principles: protectionism (protectionistic); and liberalism (freedom of trade). In addition, there are bilateral and multilateral trade policies. Trade policy includes a set of tools with which governments regulate foreign trade. Majerová (2011, p. 180) states that international trade policy amounts to the sum of the foreign trade policies of a country which are trying to regulate the foreign trade interests of the national economy. Foreign trade policy is influenced by the overall economic policy of the state and the state's foreign policy. Foreign trade policy of the state is a national behavior towards foreign trade. It contains a set of objectives and instruments with which the government directly or indirectly regulates the scope and structure of foreign trade. The foreign trade policy of a state is a part of its economic policy, as well as a part of its foreign policy. This double bond can become a source of some tension when economic policies come into conflict with the foreign political orientation of a country (Majerová, p. 192 ). By (Štěrbová 2013, p. 99-100 ) the trade policies of a state are the summary of its objectives, strategies, policies, measures, instruments, agreements and institutions, conceived and generated at the governmental level, but put upon domestic and foreign business entities. Trade policy is a system that is the upper part of a whole which has vertical and horizontal linkages with other policies both inside the country, as well as with the policies of other states which act as business partners. This is an integral aspect of all state policies through which the government manages the state's foreign relations, as well as the economic and and social development of the country. It is therefore a subsystem of a state's economic policy and how the system applies to either a single state or a representational integration. An example of how this applies to such an integration is how common principles of trade policy are applied by the European Union. By Legen (2013), "High balance surpluses are not the result of sharp rises in export performance, but rather subdued imports." May 2013 ended in a balance, according to the Statistical Office of the SR, with the historically highest monthly surplus of 664.1 million euros. Surpluses in 2013 grew from month to month and were mainly the result of subdued imports. In the fifth month of the year growth in exports, according to preliminary data, slowed down to 3.6 percent and reached 5.6 billion euros. Imports in May 2013 fell from the previous year by 1.1 percent. In April, imports jumped by 4.5 percent. Analysis by UCB stated several reasons for the decline of imports: low domestic consumption; oil prices; and less demand by industry. Weak domestic demand reduces upward pressure on consumer and investment imports. After the first five months of 2013, the accumulated surplus of foreign trade climbed to 2.5 billion euros, or 6.4 percent of economic output. Exports grew by 4.2 percent and imports by a modest 0.3 percent. The National Bank of Slovakia in recent forecasts assumes that the foreign trade surplus this year will rise to 5.8 percent of gross domestic product, greater than last year's 5.1 percent. In the next two years its share in the performance of the economy should be even higher. DEVELOPMENT IMPORT INTENSITY AND EXPORT PERFORMANCE Functional openess is given by the sum of exports and imports to total gross domestic product. Export performance is given by the share of exports in the gross domestic product. Import intensity is given by import share of the total gross domestic product. Development of the overall export performance versus overall import intensity in percentages for the Slovak Republic is shown in Figure 3

100 90 80 70 60 50 40 30 20 10 0 II EP Figure 3 Development of Import Intensity and Export Performance Source: own processing based on data from state budget Table 1 Regression Statistics Multiple R 0,896684299 R Square 0,804042732 Adjusted R Square 0,793156217 Standard Error 6,186713589 Observations 20 ANOVA Df SS MS F Significance F Regression 1 2826,898929 2826,899 73,85676 8,70829E-08 Residual 18 688,9576505 38,27543 Total 19 3515,85658 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 42,320210 2,8739232 14,725 1,75E-11 36,282322 48,35809 X Variable 1 2,0617894 0,23991046 8,5939 8,7E-08 1,557756 2,565822 Source: Own processing in Excel

Figure 4 Prognosis Import Intensity Source: Own processing Table 2 Regression Statistics Multiple R 0,956199595 R Square 0,914317665 Adjusted R Square 0,909557535 Standard Error 4,897799103 Observations 20 ANOVA Df SS MS F Significance F Regression 1 4607,65820 4607,6 192,07 4,805E-11 Residual 18 431,791848 23,988 Total 19 5039,45005 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 32,234736 2,27518174 14,16 3,4E-11 27,454757 37,014716 X Variable 1 2,6322631 0,18992850 13,85 4,81E-11 2,233238 3,0312881 Source: Own processing in Excel

Figure 5 Forecast Export Performance Source: Own processing This linear model assumes a constant evaluation of the seasonal evolution of the phenomenon. Based on annual data on imports and gross domestic product from 1993 to 2012, the estimated prognosis of import intensity is displayed in the form of equations. The estimated regression line is y = f (t) = 42.3202 + (2.0617 t). The estimated regression equation can be ingested on estimation and prediction. The coefficient of determination R2 = 80.402%, which quantifies the situation in which an 80.402%, change in the dependent variable is explained by the independent variables. In other words the estimated regression model explains about 0.804 of the variation values of the dependent variable. The correlation coefficient R = 89.66%, with a significance level α = 0.05; p = 0.00 Based on monthly data on exports from 1993 to 2012 the predicted prognosis of export performance is estimated by the equation y = f (t) = 32.2347 + (2.6322 t). The coefficient of determination R2 = 91.43%. The correlation coefficient R = 95.61%, with a significance level α = 0.05; p = 0.000. The outcome of the test statistic is in the ANOVA table. The error value of regression = 2.27. Then the mean change in export performance in a unit increment estimate is the value 2.6322631. (regression coefficient ß, directive selection of the regression line), ß 2.233238 3.0312881. The test statistic is 13.85 and the p-value = 4,805. 10-11 test the statistical significance of regression coefficients, i.e. the linear statistical model is appropriate, since p = 0.000, the value is significantly smaller than α (α = 0.05). For a comparison of countries in Table 3 of the export performance of the euro attributable to per capita income of the country. Table 3 Export Performance ( / Inhabitant) Krajina 2000 2001 2002 2003 2004 2005 2006 2007 2008 Belgium 19931 20711 22184 21932 22509 25737 25737 29726 30094 Czech 3067 3616 3986 4225 5426 6145 7375 8696 9614 Danmark 10431 10785 11138 11394 12356 13401 13635 14301 14497 Finland 9652 9324 9191 9021 9482 10257 11714 12467 12377 Hungary 2984 3323 3589 3757 4421 4926 5958 6908 7350 Greece 1165 1171 1004 1082 1114 1254 1474 1539 1525

Slovakia 2379 2607 2830 3594 4126 4758 6189 7922 8926 Sweden 10643 9504 9663 10089 11048 11676 13020 13523 13573 Germany 7271 7759 7900 8050 8863 9459 10707 11712 11960 France 5857 5923 5711 5603 5834 5934 6246 6330 6389 Britain 5275 5162 5004 4546 4679 5146 5912 5272 5110 EU 27 5502 5699 5756 5742 6192 6662 7410 7873 8063 Source: Majerová, Nezval 2011, s. 249 CONCLUSION Surplus is not the result of a sharp increase in export performance, but rather a subdued influx of imports. The share of exports in GDP of Slovakia confirms the dominance of foreign trade and production, as well as of our high dependence on external economic relations. From this, it naturally follows that an important aspect of any economic strategy of foreign policy, is that it be oriented to promote exports. Slovakia is, on the basis of its high export performance, on the verge of becoming an economy that will successfully engage in international trade, which will be a positive factor for the economic growth of the country. In accordance with the EU-wide strategy, a tangible cardinal aim is to create a stable pillar to support its active foreign trade policy, in particular the development of Slovak exports and promoting the competitiveness of companies in Slovakia in international markets. Efforts are required to support the improvement of competitiveness and increase domestic production, which would reduce dependence on imports. The role of international trade requires good knowledge and information from the micro economic environment and the macroeconomic environment, as well as the presumption of the amenities of human capital and knowledge of the economy. For faster growth of the Slovak economy in the second quarter of 2013, according to economic analysts net exports must increase. The same is the most significant factor in the increase in gross domestic product (GDP) in the second quarter by 0.9%. In the first quarter, while the country's economy grew by 0.6%, the foreign trade surplus in the second quarter of 2013 increased by 80%. Conversely, imports were subdued due to domestic consumption being almost stagnant. Post is one of the outputs KEGA 037PU-4/2014, "Curriculum documents for e-learning based and their implementation in teaching disciplines of quantitative methodology, Information Management and Finance." References BALÁŽ, P. a kol. 2010. Medzinárodné podnikanie. Na vlne globalizujúcej sa svetovej ekonomiky. Bratislava: Sprint dva. ISBN 978-80-89393-18-3. JENČOVÁ, S. and D. MAŤOVČÍKOVÁ., 2013. Medzinárodný obchod. Prešov: Bookman, s.r.o. ISBN 978-80-89568-71-0. JENČOVÁ, S. and Eva LITAVCOVÁ, 2013. Analytický pohľad na intenzitu zahraničného obchodu Slovenska. In: Ekonomické spektrum. Roč. VIII. č. 5. Recenzovaný vedecko-odborný on-line časopis o ekonómii a ekonomike. Bratislava: CAESaR Centrum vzdelávania, vedy a výskumu. ISSN 1336-9105.

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